associated rises in oil and basic commodity prices, set off inflationary pressures, and caused a global recession of a magnitude not seen since the Great Depression of the 1930s. The poorest countries, while not able to join in the feasts of liquidity in the good times, are struc- turally positioned to pay the burden of inflation and rising food prices when a downturn emerges. Because of their low quality of life indicators (which we explore further in chapter 6), and the sheer impossibility of debt repayment, from 1997 the poverty reduction initiatives from the IFIs have promised that more bad and odious debt be written down or removed from the books. However, progress has been slow, with reluctance on the part of bankers to admit that liquidity problems might be a symptom of insolvency more broadly. Wall Street continues to oppose initiatives, such as Krueger’s Sover- eign Debt Repayment Mechanism of 2001, which would constitute a more structural resolution of severe indebtedness, preferring instead the profitable business of debt ‘work-outs’. The US Treasury, mean- while, prefers ‘collective action clauses’. Needless to say, there continue to be ‘geopolitical write-downs’ post-2000, such as in Turkey (since 1999), Brazil (2002) and Iraq (2004). The significant write-off of Nigerian national debt by the British in 2005–06 and 2006–07 also seems reactive (but could be a coincidence). As China enters the ring as a major competitor, the UK, as market leader, signif- icantly cheapens the cost of liquidity! The global figures for debt reduction are less than breathtaking. In policy terms, HIPC I (1998) and HIPC II (1999) were formulated as the current international framework for debt management, and ostensibly focus on sustainability with first 250 per cent then 150 per cent of debt-export ratio triggering the right to action the scheme, which has a decision point and then another period to completion point. Controversially, for some, a PRSP is required to qualify at the former ‘point’. By autumn 2004, 27 countries had benefited, with $34 billion involved, marginally more than Iraq’s Paris Club deal (Watkins 2004, cited in Payne 2005: 154). These debt write-offs then become re-accounted in changes in Official Development Assistance (ODA). For example, total ODA from the G7 increased from $58 billion in 2004 to $80 billion in 2005, then dropped to $75 billion in 2006, a year-on-year decrease of nearly 6.3 per cent, while non-G7 contributions increased by 6 per cent between 2005 and 2006. However, the Organisation for Economic Co-operation and Develop- ment (OECD) reports that much of the increase in ODA in 2005 was attributable to debt relief: if debt relief is excluded from OECD aid figures then ODA from Development Assistance Committee (DAC) members decreased by 1.8 per cent in 2006 (HC Library 2007). The only caveat to the conclusion that debt relief has so far been a MONEY AND POWER [26] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 26 relative disappointment is the predicted increase for the late 2000s. For example, the Multilateral Debt Relief Initiative (MDRI), agreed at Gleneagles in 2005, means that when countries complete HIPC they also receive a 100 per cent cancellation of their remaining African Development Bank (AfDB) debts (AfDB 2008), in addition to cancella- tion at the World Bank and IMF. By 2008, 30 countries had reached this point, with the AfDB cancelling over $8.3 billion. According to the UK’s Department for International Development (DfID), reported in International Development Committee (IDC) minutes, MDRI had provided ‘an additional’ $33 billion of debt cancellation for African countries from the AfDB, World Bank and IMF since 2006 (HC 2008: 18). It remains to be seen whether this is a book exercise at these banks or whether more funds will be made available as a consequence. It can be reasonably predicted, given the current global recession, that new money will be limited; such that the write-off of antique debts will be without major consequence. Overall, the figures are less than impressive; as troubling is the macro policy conditionalities which continue to incur wider economic costs in the ‘recipient’ countries, including those losses to the national accounts of forced privatisation. For example, the PRSP was rolled out to other low income countries, as a ‘generalised means of intervention in economic and social policy and political governance’(Cammack 2002: 50, cited in Payne 2005: 154). Despite the good intentions of debt campaigners, increased surveillance of indebted countries has accom- panied any small reductions in debt stock that have taken place, a factor singularly contributing to the popularity of Chinese and Indian development finance in Africa, which tends to arrive with much less conditionality. 6 Conversely, and again despite the good intentions of debt campaigners, an absence of surveillance means that debt cancel- lation can provide a one-off rent for elite consumption: even in Tanzania and Uganda, generally viewed as ‘donor darlings’, debt cancellation was shortly followed by the purchase of new presidential jet planes (Calderisi 2006: 219). In itself, this does not say much, except that there is no necessary relationship between debt cancellation and increased quality of life for the majority. What is clear about the overhang of debt accumulated from devel- opment finance to private sources (rather than governments), which has not been repaid, is that it becomes highly lucrative business for the international securities market and probably contributes to the specu- lative trading that makes the financial system as a whole so volatile, with the attendant costs that are born by the most vulnerable countries and people. This market, in its current form, originally grew as a response to a US tax law of 1963, aimed at discouraging foreign issuers from borrowing from US investors and which simultaneously made it MONEY IN THE POLITICAL ECONOMY OF DEVELOPMENT [27] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 27 difficult for US companies to fund subsidiaries from within the United States. Thus companies wishing to raise debt denominated in US dollars turned to Europe, where tax rates were lower and the Eurobond market began. The debt crisis prompted an extension of innovative financial instruments – such as debt-for-equity swaps and debt-for-environment swaps – while worldwide trading now encom- passes all sorts of substitutable financial products denominated in a host of currencies and, as well as warrants, global depository receipts, international floating rate notes and Euro commercial paper. Various forerunners merged in July 2005 to become the International Capital Market Association (ICMA), with a 40-year provenance in regulatory governance, acting as a self-regulatory organisation and trade associa- tion in the international debt market, ‘providing a stable self- regulatory framework of rules governing market practice’ (ICMA 2008). Market size, a measurement of the total number of outstanding international debt issues, was estimated to be over $8 trillion in December 2004 (ibid.) and $11.5 billion (equivalent) in 2007 (ICMA 2008a, citing Xtrakter 2007). The ICMA has a membership which includes regional banks and traders, but its core, what it refers to as its ‘market making community’, comprises a ‘council of reporting dealers’, made up of around 40 firms, almost three-quarters of which are based in London, which together account for the ‘majority of cross-border business in the international capital market’ (ibid.). Aid: ‘much heat and light and signifying nothing’? From 1992 to 1997, OECD official development assistance decreased by 21 per cent to only $49.6 billion, an ODA to GNI ratio for DAC members of 0.22 per cent, ‘a far cry’ (Thérien 2002: 458) from the 0.7 per cent agreed at the United Nations some 30 years earlier. Moreover, the ODA to the least-developed countries dropped from $17 billion in 1990 to $12 billion in 1999, and much of this was tied (Payne 2005: 160–162). But from around 1999, a new importance was attached to ODA, codified in the Millennium Development Goals (MDGs) and the 2000 Millennium Declaration. A mood of optimism prevailed as an International Confer- ence on Financing for Development opened in Monterrey in 2002 and the ‘Monterrey Consensus’ was reached, even though this too ultimately proved disappointing. Some G7 members announced modest rises in ODA, with, for example, the United States launching its Millennium Challenge Account. As the OECD itself calculated, even if Monterrey were fully met, by 2006 the ODA/GNI ratio in DAC countries would have risen by only 0.02 to 0.24 per cent (Payne 2005: 163). Africa was then accorded a measure of priority in the NEPAD in 2002, to achieve a 7 per cent annual economic growth sufficient to fund MONEY AND POWER [28] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 28 the halving of African poverty by 2015. The political strategy was to cost the price of meeting the MDGs and encourage donors to pay more, in return for renewed loyalty to the conditionalities of neoliberalism. However, commitment to poverty reduction remained weak. Even James Wolfensohn, then President of the World Bank, noted in 2004 that $900 billion was spent globally on defence, as compared to $50–60 billion on development, but ‘if we spent $900bn on development, we probably would not need to spend more than $50 billion on defence’ (reported in the Financial Times, 26 April 2004, cited in Payne 2005: 165). Bond, similarly, notes that ‘compared to military spending of $642 billion by rich countries in 2003, aid of $69 billion is a pittance’ (2006: 33). In terms of just Africa, $25 billion is spent per year (for 600 million people) compared with $200 billion spent in 2003 and 2004 on the war in Iraq, an oil producer with only 25 million people, or compared to $350 billion spent by the European Union to protect its farmers (Calderisi 2006: 218). Viewed comparatively, the overall figures for aid expenditure look miserly. We will return to examine the volumes, scope and value of ODA in more detail in chapter 6. The current market for development finance From the above summaries of private finance, debt and aid, we arrive back at our original question: whether the current market for develop- ment finance has adequate liquidity, or whether the costs of this money remain normatively unacceptable. A reasonable conclusion would be that however welcome the contemporary (small) increase in funds might be there remain serious problems in the market for development finance from the perspective of developing countries. Spero and Hart (2003) summarise the mainstream position on these as the (in)ability and (un)willingness of debtor governments to implement reform, especially in terms of information provision and disclosure; the (in)ability of IMF to force implementation; continued weaknesses in international bank supervision and regulation, particularly with regard to securities firms and securities markets; and an absence of a restructuring mechanism. More particularly they are concerned with the increased moral hazard associated with country bailouts (Spero and Hart 2003: 58–9), while they anticipate conflicts in governance: between globalisation and national sovereignty. Managing globalisation requires the coordination of national economic policies and the imposition of international discipline over policies that traditionally have been the prerogative of national governments. (Spero and Hart 2003: 59) MONEY IN THE POLITICAL ECONOMY OF DEVELOPMENT [29] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 29 This conflict can indeed be anticipated, and the weaknesses in holding private securities markets to account, and the continued absence of a sovereign bankruptcy mechanism, are indeed market weaknesses. However, the strict divide between a sacrosanct sovereignty and an imposition from ‘outside’ is too simplistic and absolute. Instead, from a political economy perspective we can be concerned about the way that this system affects governance, democracy and development processes. From our more structuralist perspective there remain two main types of problem: the first is the continued parsimony of assistance per se, despite the acute rhetoric of benevolence. This is not to advo- cate deepened interventionism by creditor states – far from it – just to recognise that although the numbers might sound large, they are not, and the money can’t go very far or buy very much for mass populations, although it is sufficient to tip the balance of power in favour of incumbent governments when used strategically around elections. The second problem is systemic and concerns the compro- mised and failed legitimacy of sovereign debt when there is so much evidence that: 1. ‘Aid-spoilt’ local elites have often adopted a particular style of anti-democratic, exclusionary politics, sometimes with the collu- sion of donors (on Kenya, for example, see Murunga 2007; Bracking 2006). 2. ‘Aid’ has played a significant role in helping multinational corpo- rations (MNCs) both collude in this exclusionary game, while passing on their investment costs of plant and machinery to their workers through the sovereign debt mechanism 3. Related to point 2, much aid and debt relief – that is, advertised liquidity – is phantom and exists principally as a subsidy or Keynesian injection with which creditor governments assist their own companies, particularly by underwriting and then socialising the costs of risks and investment. This relationship is depicted in Figure 4.1, at the end of chapter 4. We return to the effect of devel- opment finance on politics in chapter 11. These problems with the political economy of development have been noted by writers who point to the apparent incoherence of develop- ment policy, ranging as it does from welfare and social policy, saving lives and humanitarian assistance, through to providing equity subsi- dies to major global companies and enforcing the types of markets they wish to work in through conditionalities. In general, the political economy of development reflects, reproduces and supports the general policy stance and associated government activities which uphold MONEY AND POWER [30] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 30 neoliberal markets worldwide. While neoliberalism is a complex concept, it centrally involves a freedom of capital holders to move their money and profits around the globe relatively unhindered by govern- ments (for more comprehensive accounts see Harrison 2005; Saad-Filho and Johnston 2004). In development, these macroeconomic policies of ‘liberalisation’ (unhindered trade, finance and exchange) are seen to be in contradiction with the former social welfare policies. Pieterse summarised the current political economy of aid and poverty reduction adeptly when he pointed to this ‘incoherence’ of policy: Neoliberal policies widen the global inequality that poverty reduction strategies seek to mitigate. International financial institutions count on ‘conditional convergence’ while inhibiting the required conditions from materialising. Interna- tional institutions urge state action while trapping states in structural reform. (2002: 1042) He continues that neoliberal policies are probably the ‘central dynamic’ in widening domestic and global inequality since the 1980s, since they ‘bet on the strong, privilege the privileged, help the winners, expose the losers and prompt a “race to the bottom”’ (Pieterse 2002: 1032), a view shared by the robust analysis of Milanovic (2003). Mean- while, for the general public, it is undoubtedly the former social welfare functions of aid that are understood to constitute the aid rela- tionship as a whole: few, in any case, think aid budgets are given to multinational companies in order to build the infrastructure they themselves use. However, it is not the purpose here to support the conservative case for less aid (based in racialised ideas of corruption and waste) by critiquing the private uses of aid budgets, rather to ques- tion the pattern of ‘beneficiaries’ we can expect, and to suggest that aid should be spent in a different pattern. It is also not the purpose here to reiterate the debate about the inef- ficacy of neoliberalism to development, particularly in its crude cost/benefit mode, suffice to say that we are returned to the Marxist conundrum about the nature of exploitation mentioned in chapter 1: an absence of capitalism can be normatively as bad, if not worse, than an overdose of it in the neoliberal mode. Many radical accounts are proselytising in their rebukes for a ‘neoliberalism’ concept which is ludicrously expanded to depict a catch-all of everything that is wrong with contemporary economics in respect of social welfare. At this generic level the argument risks descending into caricature, and we lose the strategic agenda of how social and worker movements can shift the balance of global power in favour of the poor, by MONEY IN THE POLITICAL ECONOMY OF DEVELOPMENT [31] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 31 democratizing the management of markets in their favour. That current development policy is detrimental to social justice is evidenced by the gratuitously negative statistics on social wellbeing in Africa (see chapter 6) and some parts of South-East Asia and Latin America, and the collective myopia of those involved in high institutions to see their contributions relatively, as the small change that they really are, in comparison to structural relationships that are singularly skewed in favour of the already rich. Cynically, but not inaccurately, the global development ‘budget’ is no more than a small palliative, a sophisti- cated public relations machine to undermine the critique of global power to which the international worker and social movement is inclined. It is the ‘gift from the American people’ stamped on the bag of corn in the television picture. The public relations exercise contra- dicts popular knowledge, the ‘consciousness arising from being’, the lived experience of the minute reach of developmental welfare, relative to wider economic exploitation: this consciousness asks ‘what global assistance is this, that is so little and so late?’ Pieterse reminds his readers of Thomas Pogge’s (2002) ‘interna- tional borrowing privilege’ that ‘regardless of how a government has come to power … can put a country into debt’, and the ‘international resource privilege’ that ‘regardless of how a country has come into power … can confer globally valid ownership rights in a country’s resources to foreign companies’ (Pieterse 2002: 1035; see also Pieterse 2004: 75). Pieterse goes on to say: In view of these practices, corporations and governments in the North are accomplices in official corruption; thus, placing the burden of reform solely on poor countries only reinforces the existing imbalance. (2002: 1035) His argument can, however, be extended to development in general, since development policy unquestionably recognises Pogge’s ‘privi- leges’: it colludes and reproduces political and economic elites who have the power to throw their own populations into poverty and abjec- tion. We do not see, for example, the World Bank turning to rapacious elites and saying, ‘No, you can’t borrow in the name of your poor people, your personal income is too high already’! Instead structures of inequality are reinforced. The current anti-democratic approach has been summarised by Joseph Ki-Zerbo (with reference to donor policy at the time of the Moi Government in Kenya during the 1990s) as ‘Silence, Development in Progress’ (cited in Murunga 2007: 288). Development policy and development finance can do this because they critically tip the balance of power in elites’ favour relative to the MONEY AND POWER [32] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 32 majority population, allowing them to collect rents from the strategic use of the sovereignty they control (see also Harrison 1999: 537–40 on ‘boundary politics’; Bracking 2009; and chapter 11). From the perspec- tive of the political economist, it is to the construction of markets that we should now turn in the next chapter to see how these antimonies of power are reproduced. Conclusion This chapter has provided a brief overview of the availability of liquidity from the private sector and the public sector in the form of development finance, and has examined the intimate relationship conceptually and practically between flows of money called ‘invest- ment’, ‘debt and debt relief’ and those categorised as ‘aid’. These carry social and economic relations, what Marxists would call the ‘capital relation’ to other societies through institutional channels, principally within the frontier of the state, as described in chapter 1. Before returning for a closer look at these institutions, the next two chapters review, first, how markets are made and the principal use of risk as a form of liquidity management; and then, second, how the Great Predators are structured. For those readers who are not econo- mists, this is not as dry as it sounds, and is illuminating of broader concerns than just money itself! Technical language in the area of finance serves to hide and mystify more general relationships of social power, privilege, and status and critically obscures how the divide between the global haves and have-nots is maintained; the technical slights of hand are the implementing policy machine of the political economy of development. It is worth looking beyond the jargon. Similarly, we saw in this chapter how ‘big’ numbers can hide systemic relationships of power and inequality, such that the appar- ent generosity of debt relief and aid is variegated and significant only ‘at the edges’ of the wider capitalism in which it is embedded, and by which it is overshadowed. As Keynes famously noted ‘interesting things happen at the edges’, so we must now look at these markets for finance further. Notes 1. ‘Right to Food’ is contained in the International Covenant on Economic, Social and Cultural Rights (ICESCR), General Comment 12. ‘Responsi- bility to Protect’ is contained in the United Nations Security Council Resolution 1674 of April 2006, which endorses the 2005 World Summit statement of the same. 2. In some countries, such as Nigeria, these claims ran into billions of pounds. MONEY IN THE POLITICAL ECONOMY OF DEVELOPMENT [33] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 33 3. All $ in this book refer to United States of America (US) dollars. 4. According to Lafay and Lecaillon (1993: 68), two-thirds of Latin American debt was at a variable rate, compared with only one-third for Asia, which was thus ‘less hard hit’. 5. As a student at the University of Leeds once memorably put it in an essay. 6. Whether this is astute ‘market entry’ behaviour aimed at undercutting the prior market leaders or whether Chinese and Indian finance will continue to be relatively condition free, if indeed it is now, remains a difficult ques- tion. The special issue of Review of African Political Economy (2008), 115, ‘The “New” Face of China–African Co-operation’, makes some interesting observations in this regard (Power et al. 2008). MONEY AND POWER [34] Bracking_03_cha02.qxd 12/02/2009 10:55 Page 34 [35] 3 Making markets We saw in the last chapter that access to private funds for development for the majority of the poorest countries has been sporadic and difficult since 1982. In Africa, from the onset of the debt crisis, what are termed ‘externalised’ forms of multinational corporation (MNC) involvement became increasingly common, such as subcontracting and production under license; forms of involvement which involve a thin equity base and which are less risky, often incorporating arrangements for assured payment in foreign exchange for services, brand use and royalties for patented processes (Bennell 1994: 14; United Nations Centre for Transna- tional Corporations (UNCTC) 1989; United Nations Commission for Trade and Development (UNCTAD) 1994). Thus, as Bond clearly shows in his book (2006), smaller investment volumes do not imply the absence of profitable extractive processes, rather that these are done on a thin equity base, in privatised and sometimes criminalised extractive enclaves. This pattern has contradicted the 1990s proposition that there was a powerful association between ‘good’ macroeconomic policies and inward investment, since the wider context has not been particularly significant in determining investment patterns (see Ferguson 2006: 194–8). In turn, markets have grown unevenly and irregularly around these uneven investments, confounding economists’ predictions in varied and often personalised contexts, with social and political factors more important than a general model would allow for. In this chapter we look further at how markets are structured and the role, in particular, of public ‘market makers’; a theme which is developed in the next chapter by a further examination of the relationship between international finan- cial institutions (IFIs) and creditor states. In chapter 5, a case study of the British frontier institutions for capital export is presented. Together, we are exploring how the public sector critically socialises and underwrites risk in favour of the profitability of the private sector. Where invest- ments haven’t been concentrated around mineral extraction, infor- malised or globally integrated through an MNC supply chain, they have been forged under the guardianship of public development finance institutions (DFIs). So, how are markets made? Markets It is not sufficient to look only at aggregate data when explaining the political economy of development, since such data measure the outcomes of social process. At a meso-level there are also attendant structural relationships formed and reformed during the processes of Bracking_04_cha03.qxd 12/02/2009 10:56 Page 35 [...]... terms’ of operation, the ‘market makers’, and who control the allocation of international liquidity, are concentrated in the IFIs and large banks They exist at the ‘commanding heights’ (Arrighi 1994: xii), in the boardroom of the global economy, and their relatively small number explains in part both the herd behaviour of investors when markets are in trouble, and the incredible booms and slumps of fortune... concentrate information, and hence power, in the hands of few: that some participants are “market makers” while others enter in a position of weakness; that markets absorb huge quantities of resources in their functioning; that profits of a [ 37 ] Bracking_04_cha03.qxd 12/02/2009 10:56 Page 38 MONEY AND POWER few, and growth for some, thrive in conditions of uncertainty, inequality and vulnerability of those... serves the interests of the privileged By means of this exploration, we can then identify ways in which development finance makes and expands markets Market structures are not expressions of abstract principles of rationality and efficiency, but instead: represent concrete configurations of power; markets are determinations of power relations, expressions of lines of force (domination and subordination)... fortune as the system swings around its own measures of ‘confidence’ In turn, the global markets for goods and services are constructed indirectly by this overriding market for finance, since it is the commodity essential to join in any of them [ 38 ] Bracking_04_cha03.qxd 12/02/2009 10:56 Page 39 MAKING MARKETS One of these ‘market makers’, the IFC, explained the problematic, even at the height of the ‘free... substantiated by research Thus, the dearth of private investment in Africa is explained by the private sector in terms of Africa being ‘too risky’ However, the homogenising and racialised view of Africa in the money capitals of the world does nothing to assist productive investment, even when opportunities arise Mkandawire carried out research on FDI and found that: rates of return of direct investments have generally... of Great Britain has been primarily a struggle for profitable markets of investment To a larger extent every year Great Britain has been becoming a nation living upon tribute from abroad, and the classes who enjoy this tribute have had an ever-increasing incentive to employ the public policy, the public purse, and the public force to extend the field of their private investments, and to safeguard and. ..Bracking_04_cha03.qxd 12/02/2009 10:56 Page 36 MONEY AND POWER investment, trade and exchange which author economic possibilities and denials In other words, in the promotion of The Market’ of the structural adjustment programme (SAP) period, a deepening of the management of markets by the IFIs took place: markets were constructed and access to them managed to re-configure the colonial pattern of dependent... positions of ‘donor agency’ and ‘profit-seeking financial intermediary’.1 But the complementarity between the two is possible only because the profitability is material and measurable, while the ‘development’ is asserted normatively Just as importantly, because the profitability in weak markets is purposively constructed: while the Great Predators often lend at ‘market interest rates’, and profitability... emerge: the problem of risk assessment in economic exchange and the distribution of costs and profits in the risk regime as a whole The problem of assessment prompts the question [ 39 ] Bracking_04_cha03.qxd 12/02/2009 10:56 Page 40 MONEY AND POWER why some countries are deemed ‘risky’, indeed why some are ‘too risky’ to attract private flows of FDI or credit, and others not, particularly when the label... at these rates, it is important to note that these ‘market rates’ are constructed artificially, in the case of the very poorest countries, by the Predators themselves Because there is an incomplete or non-existent market for similar products – long-term finance and equity – since no private firms are exchanging, the price of the money is set by the supplier or suppliers, acting like a cartel: it is in . status and critically obscures how the divide between the global haves and have-nots is maintained; the technical slights of hand are the implementing policy machine of the political economy of development. . claims ran into billions of pounds. MONEY IN THE POLITICAL ECONOMY OF DEVELOPMENT [33 ] Bracking_ 03_ cha02.qxd 12/02/2009 10:55 Page 33 3. All $ in this book refer to United States of America. overriding market for finance, since it is the commodity essential to join in any of them. MONEY AND POWER [38 ] Bracking_04_cha 03. qxd 12/02/2009 10:56 Page 38 One of these ‘market makers’, the